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Updated on May 15.
Sweeping tariffs enacted by the new Trump administration are expected to bring a new wave of price hikes. Inflation data doesn’t yet capture the impact, but many brands have warned customers they’ll pay more because of tariffs. For details, see:
During the pandemic, prices for goods and services skyrocketed as businesses grappled with COVID-19 and the economic turmoil that came with it. By mid-2022, the overall inflation rate reached 9% — the highest in a generation.
While inflation is much slower now, it’s still above targeted levels, and prices remain high. On average, prices are about 26% higher than before the pandemic, according to the consumer price index, which serves as a proxy for inflation. The effect is widespread — no household necessity is untouched.
Price hikes alone don’t show the full picture. As they increased, the cost of borrowing money also got more expensive because the Federal Reserve raised the fed rate in an effort to curb inflation. That added to the already-soaring cost of purchasing a new car or home. It also made credit card debt more expensive.
Why inflation was so high
Economic upheaval brought on by the COVID-19 pandemic drove inflation.
First, the pandemic scrambled global supply chains, with businesses facing shortages of goods and materials as well as delays in transportation. It also accelerated trends in online shopping and working from home that profoundly shifted consumer demand and left business scrambling to adapt. Labor shortages exacerbated these challenges and led to higher wages — a significant expense for any business.
Each sector of the economy also had its own variables at play. For example:
- Russia’s invasion of Ukraine played a role in pushing up food and gas prices.
- Low inventory elevated housing prices for homebuyers, as well as renters.
- An uptick in the number of claims during the pandemic raised car insurance rates.
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Now that the economy is normalizing, inflation has slowed down. Consumers shouldn’t expect prices to return to pre-pandemic levels. But prices have come down in some sectors.
Inflation boosted wages, too
For the most part, households managed to absorb the price increases. Wages actually grew faster than inflation and are more than 33% higher since April 2019, according to average hourly wages data from the Bureau of Labor Statistics.
» Learn more: How to fight inflation and play the long game
Savings also grew. U.S. households amassed around $2.3 trillion in savings in the first year of the pandemic, which was “above and beyond” what they would’ve saved in normal circumstances, according to the Federal Reserve.
Still, all of this brings little solace to most people. Why is that? Consumers are quick to blame inflation when prices rise but don’t credit it as readily when wages do, according to a survey by Stefanie Stantcheva, a Harvard University economics professor. The results of the survey were reported in a March 2024 paper published by the Brookings Institution.
Instead, workers are more likely to say pay bumps don’t match inflation and are the result of their job performance. That contributes to a general feeling of unfairness when prices rise and households have to adjust their spending.
The original version of this article was published in April 2023 and written by lead writer Cara Smith. It was substantially updated in August 2024.
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